Whole of Government Accounts Year ended 31 March 2010 HC 1601 November 2011 Whole of Government Accounts Year ended 31 March 2010 Accounts presented to the House of Commons pursuant to Section 11 of the Government Resources and Accounts Act 2000 Ordered by the House of Commons to be printed on 29 November 2011 HC 1601 London: The Stationery Office £37.00 © Crown copyright 2011 You may re-use this information (not including logos) free of charge in any format or medium, under the terms of the Open Government Licence. To view this licence, visit http://www.nationalarchives.gov.uk/doc/open- government-licence/ or write to the Information Policy Team, The National Archives, Kew, London TW9 4DU, or e-mail: [email protected]. Any queries regarding this publication should be sent to us at: [email protected]. This publication is also available on http://www.official-documents.gov.uk/ ISBN: 9780102975192 PU1228 Printed in the UK by The Stationery Office Limited on behalf of the Controller of Her Majesty’s Stationery Office Printed on paper containing 75% recycled fibre content minimum ID P002462381 11/11 Contents 1. Foreword ................................................................................................................................................................................ 3 2. Introduction ............................................................................................................................................................................ 7 3. Commentary ......................................................................................................................................................................... 11 4. Statement of Accounting Officer’s Responsibilities .......................................................................................................... 29 5. Statement on Internal Control ............................................................................................................................................ 31 6. Remuneration Report .......................................................................................................................................................... 35 7. Certificate and Report of the Comptroller and Auditor General ...................................................................................... 39 8. Whole of Government Accounts ......................................................................................................................................... 71 Year ended 31 March 2010 page 1 Whole of Government Accounts 1 Foreword 1.1 Whole of Government Accounts (WGA) is a consolidated set of financial statements for the UK public sector. WGA consolidates the audited accounts of around 1,500 organisations across the public sector, in order to produce a comprehensive, accounts-based picture of the fiscal position in any one year. Today’s publication represents an important milestone in a process that began over a decade ago, but it is also work in progress as we seek to further improve the quality of the data and its presentation. 1.2 WGA is based on EU adopted International Financial Reporting Standards (IFRS), the system of accounts used internationally by the private sector, as adapted or interpreted for the public sector context. It complements the National Accounts figures, produced by the Office for National Statistics (ONS), by providing a set of financial statements based on standards familiar to users of private sector accounts. 1.3 WGA brings together, for the first time, audited financial information from central government, local government, the National Health Service (NHS) and public corporations. It makes clear a number of metrics that previously had been difficult to calculate, such as the net public service pension liability, the Government’s commitments under Private Finance Initiative (PFI) contracts, total provisions, and contingent liabilities. In particular, the account includes: • a consolidated Statement of Revenue and Expenditure; • a consolidated Statement of Financial Position, showing public sector assets and liabilities; • a consolidated Cash Flow Statement; and • a Statement on Internal Control. 1.4 This first ever set of audited financial statements for the public sector is a significant milestone. Accruals accounting was introduced into central government around ten years ago, and the production of an accruals account for the whole of the public sector is the culmination of the journey towards full adoption of accruals accounting by the public sector. 1.5 WGA is the most ambitious financial consolidation of public sector accounts carried out so far. Creating this consolidated account for the whole of the public sector has been a large and complex task, and represents a step increase in transparency and accountability. 1.6 As this is the first year in which WGA is published, there is no historical data for comparison. Over time, annual publications of WGA will allow the user to build up a clear and consistent picture of trends and changes in the Government’s fiscal position. WGA will also allow for international comparisons of fiscal balance sheets to be made, provided that other countries’ accounts are produced on a comparable basis. The origins and history of WGA 1.7 Parliament originally requested consolidated accounts for central government as long ago as the 1994-95 parliamentary session.1 In July 1997, HM Treasury agreed to look at the feasibility of such accounts. The resulting 1998 scoping study2 concluded that producing consolidated accounts for the whole public sector was the best way to proceed and that this would bring benefits for both government and external users, because: “such accounts would provide useful information additional to that in the National Accounts, and would be auditable. Users could therefore have real confidence that the figures they contained were constructed according to consistent well defined rules, which fit with the rules applied to the construction and presentation of commercial-style accounts.”3 1 Public Accounts Committee Fifteenth Report, Session 1994-95 2 Published by HM Treasury, July 1998 3 Page 5, Conclusions and recommendations, WGA Scoping Study, July 1998 Year ended 31 March 2010 page 3 Whole of Government Accounts 1.8 The commitment to produce WGA was initially made in the Code for Fiscal Stability4, and became a statutory requirement through the Government Resources and Accounts Act 2000 (GRAA)5. Whilst the GRAA created an obligation for Treasury to prepare WGA annually, it left the timetable for publication to be set at a later date. 1.9 The initial aim was to produce an audited account covering the central government sector for 2005- 06. This was delayed until 2007-08 when the scope of the account was extended to include local government, NHS and public corporations. It was subsequently agreed that central government departments would move to IFRS, and so in the 2008 Budget, the then Chancellor announced that WGA would be published for 2009-10, in line with the move to IFRS in the central government sector. 1.10 Dry run accounts, starting in 2001-02, were initially produced for central government only, and were expanded to include local government, NHS and public corporations from 2005-06. The dry runs were used to inform the development of policies, processes and procedures. As part of the dry run process, progressive steps were taken to harmonise accounting standards across the public sector. 1.11 In 2010, the necessary parts of the GRAA were activated to enable publication. After consultation with the Comptroller and Auditor General (C&AG), it was agreed that: • HM Treasury shall send accounts to the C&AG by the 28th February of the financial year following that to which the accounts relate; • the Comptroller and Auditor General shall send the certified accounts and the report required by section 11(3)(b) of the Act to HM Treasury by the 31 October of the second financial year following that to which the accounts relate; and • HM Treasury shall lay the accounts and report received under section 11(3)(b) of the Act before the House of Commons by 31 December of the second financial year following that to which the accounts relate. The complexities of WGA 1.12 The UK has held a leading position in public sector financial reporting, and it will be the first country to publish information for the whole public sector. Internationally, consolidated financial statements are produced, but these consolidate only central government, falling short of the ambitious scope of WGA. 1.13 There are many challenges in producing this account, especially in the initial years of publication. These include: • defining the coverage of the public sector and therefore which entities to include; • the diversity of entities, which have a number of different statutory bases and different accounting frameworks, as well as accounting policies within those frameworks; • the elimination of thousands of transactions and balances that exist between different parts of the public sector; and • the scale of the data collection exercise. 1.14 These financial statements are produced by HM Treasury which is not the controlling parent of all the entities consolidated. This effectively places limits on what can be mandated in terms of data quality, disclosure preparation, interpretation of accounting standards, and timeframes. Resolving audit issues in the accounts of individual entities or financial management